Income Tax Appellate Tribunal - Mumbai
Sentinel Electric Co., Mumbai vs Assessee on 27 February, 2014
आयकर अपीलीय अिधकरण " एच " Ûयायपीठ मुब
ं ई मɅ।
IN THE INCOME TAX APPELLATE TRIBUNAL " H " BENCH, MUMBAI
ौी बी.आर.िमƣल, Ûयाियक सदःय एवं ौी बी.आर. भाःकरन, लेखा सदःय
BEFORE SHRI B R MITTAL, JM & SHRI B R BASKARAN , AM
आयकर अपील सं./I.T.A. No.1337/Mum/2011
( िनधा[रण वष[ / Assessment Year: 2007-08)
Sentinel Electric Co बनाम The Addl Commr of Income
बनाम/
24 Lawyers Chambers Vs. Tax
Ground Floor RC mama Path 14(3), Mumbai
Lohar Chawl, Mumbai 400 002
ःथायी ले खा सं . /PAN AAAFS4582K
(अपीलाथȸ /Appellant) (ू×यथȸ / Respondent)
अपीलाथȸ कȧ ओर से / Appellant by : Shri Rashmikant C Modi
ू×यथȸ कȧ ओर से/ Respondent by : Shri B P K Pande
सुनवाई कȧ तारȣख /Date of Heari ng : 27.02.2014
घोषणा कȧ तारȣख /Date of Pronouncement 28 t h Feb 2014
आदे श / O R D E R
PER B R BASKARAN, AM :
The appeal filed by the assessee is directed against the order dated 30.12.2010 of the ld CIT(A) - 25, Mumbai and it relates to the AY 2007-08. 2 The following two issues urged in this appeal:
i) Disallowance of interest expenses to the tune of Rs. 2,14,523/-;
ii)Disallowance made u/s 14A of the Act of Rs.16,378/-
3 The facts relating to the above said issues are stated in below: The assessee is a partnership firm and is engaged in the business of dealing in electrical goods. During the course of assessment proceedings, the AO noticed 2 ITA No.1337/M/2011 from the Fund Flow statement filed by the assessee that there was a net increment of Rs.60.12 lacs in the bank balances lying in the flexi and current accounts of the assessee. The AO noticed that the assessee had also availed loans from family members and relatives @ an interest rate of 12%. The AO took the view that the assessee has kept the above said borrowed funds idle in the bank account, i.e., it was not utilised for business purposes. Accordingly, took the view that the interest expenditure relating to the above said amount of Rs.60.12 lakhs needs to be disallowed. Accordingly, the AO computed the interest @ 12% on the net increment of Rs. 60,12,813/-, which works out to Rs.7,21,537/-, and added the same to the total income of the assessee. The AO noticed that the assessee has earned exempted income of Rs. 18,051/- from the investments made with UTI tax free bonds. The total value of the investments made in UTI bonds was Rs. 5,47,000/-. Hence, the AO, by applying the provisions of Rule 8D of I T Rules r.w.s 14A of the Act, computed the disallowance at Rs. 16,378/- and added the same to the total income of the assessee.
4. In the appellate proceedings, the ld CIT(A) noticed that the assessee had earned interest from bank deposits to the tune of Rs. 5,07,014/-. Hence, the ld CIT(A) gave set off of the same against the interest added by the AO and accordingly restricted the disallowance to Rs.2,14,523/-. The ld CIT(A), however, confirmed the disallowance made u/s 14A r.w.r 8D of I T Rules. Aggrieved, the assessee has filed the present appeal before us. 3 ITA No.1337/M/2011
5. The ld Counsel for the assessee submitted that the current account maintained by the assessee is a flexi account. As per the scheme applicable to the said account, any amount in excess of the minimum limit shall automatically be transferred to FD account. He submitted that the assessee would get interest from the FD account so transferred. In case of need of funds in the Current Account, the fixed deposit account will be closed and transferred to the Current account. The Ld AR submitted that the assessee has routed its business transactions through the Current account. He further submitted that the transfer between the Current account and Flexi FD account is automatic i.e. if there is excess balance, it will be transferred to FD account and if there is shortage of funds, the FD will be closed and transferred to current account. He submitted that the assessee received a huge "incentive amount" from its suppliers by the end of the year and hence the bank balance stood at a higher figure as on the date of last year. Accordingly, the ld AR submitted that the view entertained by the AO that the borrowed funds have been kept idle is incorrect. The ld AR also contended that the assessee has not diverted any funds outside its business and in fact he has effectively utilized the funds and also earned interest from out of current account. The ld AR further submitted that it is the prerogative of the business man to regulate its business affairs and hence, the AO was not justified in entertaining such kid of presumption against the assessee. With regard to the disallowance made u/s 14A of the Act, the Ld A.R submitted that the provisions of Rule 8D was not applicable to the year under consideration and hence the tax authorities are not correct in applying the same to the instant year.
4 ITA No.1337/M/2011
6. On the contrary, the Ld D.R placed strong reliance on the order of Ld CIT(A).
7. We have heard the rival contention and carefully perused the records. The first issue relates to the addition of estimated interest amount on the outstanding bank balance of Rs.60.12 lakhs. As submitted by Ld A.R, it is a balance outstanding as on the last date of the year. It is not the case of the AO that the said balance stood as it is through out the year. Further, according to the Flexi Current Account maintained by the assessee, the excess balance shall automatically be transferred to a Fixed Deposit account, which will earn interest for the assessee. Thus, we notice that the assessee has effectively utilised the surplus funds. Further, we find merit in the contentions of the assessee that it is the prerogative of the businessman to regulate the affairs of his business. Since the Flexi Current account is a running account, the daily balances would change every day depending upon the deposits and collections. Hence, in order to put the bank balances for better use, the assessee seems to have opted for Flexi Current account and in that process, it has earned a sum of about Rs.5.00 lakhs as interest also. Further, it is not the case of the AO that the funds have been diverted to other purposes, which did not earn any income. Hence, in our view, the AO has entertained the view that the assessee has kept the funds idle is not based on any material but only on surmises and conjectures. We also notice that the AO has computed notional interest of Rs.7,21,537/- on the outstanding bank balance as at the year end, which is not permissible under the Act. 5 ITA No.1337/M/2011 Accordingly, we find no reason to sustain the impugned addition. Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the entire addition of Rs.7,12,537/-, discussed above.
8. The next addition relates to the disallowance of Rs.16,378/- made under sec. 14A of the Act. We notice that the AO has applied Rule 8D, which is not applicable to the year under consideration. Since the assessee has earned exempted income, the Ld A.R was pointed out that some amount of disallowance is called for in terms of sec. 14A. The Ld A.R fairly agreed that a sum of Rs.15,000/- may be disallowed and the said proposal was also accepted by Ld D.R. Accordingly, we modify the order of Ld CIT(A) on this issue and direct the AO to restrict the addition to Rs.15,000/- on this ground.
9. In the result, the appeal of the assessee is partly allowed. पǐरणामतः िनधा[ǐरती कȧ अपीले आंिशक ःवीकृ त कȧ जाती है ।
Order pronounced in the open court on 28th Feb 2014 .
आदे श कȧ घोषणा खुले Ûयायालय मɅ 28th Feb 2014 को कȧ गई ।
Sd/ Sd/-
( B R MITTAL ) ( B R BASKARAN )
Ûयाियक सदःय / JUDICIAL MEMBER लेखा सदःय / ACCOUNTANT MEMBER
th
मुंबई Mumbai; Ǒदनांक Dated 28 Feb 2014
व.िन.स./ Raj , Sr. PS
6 ITA No.1337/M/2011
आदे श कȧ ूितिलǒप अमेǒषत/Copy
षत of the Order forwarded to :
1. अपीलाथȸ / The Appellant
2. ू×यथȸ / The Respondent.
3. आयकर आयुƠ(अपील) / The CIT(A)-
4. आयकर आयुƠ / CIT
5. ǒवभागीय ूितिनिध, आयकर अपीलीय अिधकरण, मुंबई / DR, ITAT, Mumbai
6. गाड[ फाईल / Guard file.
आदे शानुसार/ BY ORDER,
स×याǒपत ूित //True Copy//
उप/
उप/सहायक पंजीकार
(Dy./Asstt. Registrar)
आयकर अपीलीय अिधकरण,
अिधकरण, मुंबई / ITAT, Mumbai